The Study Of China’s Monetary Policy On Real Estate Price Fluctuation Influence Based On DSGE Models

Since the reform and opening up, China’s real estate industry has maintained vigorous development. In the early1990s, learning from the experience of Singapore’s housing system reform model China began the full implementation of the housing accumulation fund system. In1998, the State Council issued provisions to stop housing distribution, which marked that the real estate industry began to join in the free market comprehensively. The real estate industry plays an increasingly important role in promoting the economic growth, and becomes a pillar industry in the national economy. But the real estate fever and speculation fever which caused the real estate price to rise rapidly and plummet suddenly brought a negative effect on the finance and the development of economy in some regions. In2008, in the wake of global financial crisis, China’s real estate price soared in an average increase of25%. The central cities gained a larger rise, such as the price of some buildings in Beijing doubled in2009. Macro-economic policies like the new State Council Notice promulgated in2010are to limit the real estate market supply and demand through the adjustments to credit quota, and then play the role of restraining excessive growth of the real estate price and boosting the development of the economy. Abnormal fluctuations in housing price can cause macroeconomic instability, which will damage the benefits of the people and our country. Therefore, it is essential to analyze the relationship between real estate price and monetary policy.This dissertation builds a dynamic stochastic general equilibrium (DSGE) model which includes real estate consuming by using housing loan down payment constraints as one of monetary policy selective tools. Through the use of dynamic optimization methods, we research the impact down payment constraints place on real estate prices. The research results show that the impact of positive monetary policy will increase real estate prices while down payment constraint policy increases the purchase cost which results in a decrease in the real estate consuming, meanwhile excessive down payment constraints will lead to negative economic growth. Down payment constraint as an alternative monetary policy tool will eventually act on the money supply in the form of loan amount. At a certain economic gross, the money supply will generate a decisive impact on the price system of the economy. While real estate is an important economic pillar industry, the impact of money supply on the real estate price is very important. The paper also tests the impact of money supply plays on the real estate prices by Johansen cointegration test and Granger causality test. It is verified that there exists a long-run equilibrium relationship between the money supply and real estate prices, a two-way Granger causality relationship between money supply and real estate prices and a lag in monetary policy.Therefore, the central bank’s implementation of monetary policy should regard economic growth as the primary goal instead of following the situation of the real estate market. As for the lag of monetary policy, the central bank should be well prepared with policies to ensure the stability of the real estate prices. Only the adjustments of monetary policy framework and the inflation target of central bank can effectively maintain the excessive growth of money supply at a suitable level.